Unisys Corporation — FY2021 Form 10-K
Business context and reporting period. This annual report covers the year ended December 31, 2021; it is not a standalone fourth-quarter report. Unisys provides IT services and software through Digital Workplace Solutions (DWS), Cloud and Infrastructure Solutions (C&I), and Enterprise Computing Solutions (ECS). In 2021, it acquired Unify Square, Mobinergy, and CompuGain to expand workplace and cloud capabilities.
Financial performance and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $2.054 billion | $2.026 billion |
| Gross profit margin | 27.8% | 23.8% |
| Operating income | $154.0 million | $87.0 million |
| Loss from continuing operations attributable to Unisys | $448.5 million; $6.75 per diluted share | $317.7 million; $5.05 per diluted share |
| Cash provided by (used for) operating activities | $132.5 million | $(681.2) million |
| Cash and cash equivalents at year-end | $552.9 million | $898.5 million |
| Total debt at year-end | $529.4 million | $629.9 million |
Revenue increased 1.4%; foreign currency added approximately 2 percentage points to the year-over-year comparison. Services revenue was $1.699 billion and technology revenue was $355.1 million. SG&A was $389.5 million, or 19.0% of revenue, versus $369.4 million, or 18.2%, in 2020. Interest expense rose to $35.4 million from $29.2 million.
Operating cash flow improved primarily because postretirement contributions fell to $56.4 million from $832.2 million in 2020. Investing activities used $360.3 million, including $239.3 million for acquisitions; financing activities used $105.5 million. Year-end current assets were $1.133 billion and current liabilities were $752.5 million. The company reported a total stockholders’ deficit of $64.4 million.
Debt included $478.1 million carrying value of 6.875% senior secured notes due 2027. The revolving ABL facility had no borrowings, $5.7 million of letters of credit outstanding, and $80.4 million of availability at year-end. Management said it expected adequate liquidity for at least the next 12 months and reported compliance with lending covenants.
Material changes versus the prior comparable period
- Gross margin improved by 4.0 percentage points and operating income rose $67.0 million, with management citing higher enterprise software sales and improved efficiency.
- Continuing-operations loss widened to $448.5 million, principally reflecting $499.4 million in pension settlement losses, compared with $142.1 million of settlement losses in 2020. Other expense, net, was $580.3 million versus $329.6 million.
- FY2020 reported net income of $750.7 million included $1.068 billion of after-tax income from discontinued operations, largely related to the sale of the U.S. Federal business. FY2021 had no discontinued-operations income; the continuing-operations comparison is more informative.
- DWS revenue declined to $567.0 million from $588.3 million as the company exited certain non-strategic contracts; segment gross margin increased to 13.5% from 9.4%. C&I revenue increased to $496.5 million from $465.2 million and margin rose to 11.4% from 5.0%. ECS revenue increased to $677.5 million from $659.7 million and margin rose to 63.1% from 56.9%.
- Cash fell by $345.6 million year over year, reflecting acquisition spending, debt conversion and other cash uses. Total debt declined, including after conversion of the remaining $84.2 million principal of 2021 convertible notes for cash and shares.
Outlook, commentary, risks and unusual items
- No specific consolidated revenue, earnings, or margin guidance for 2022 is provided in the filing. Management described revenue growth and gross-margin improvement as strategic priorities.
- Firm order backlog was $3.0 billion at year-end, down from $3.6 billion a year earlier; approximately $1.2 billion was expected to convert to 2022 revenue. Separately, remaining performance obligations were approximately $0.7 billion, with about 34% expected to be recognized by the end of 2022. Backlog may be canceled in some circumstances.
- The company settled approximately $1.2 billion of defined benefit pension obligations during 2021, generating $499.4 million of pretax settlement losses. It expected approximately $40.2 million in 2022 pension contributions, primarily for international plans, and approximately $42.3 million in 2022 pension expense. The filing said U.S. qualified-plan contributions were not expected to be required for at least 10 years based on year-end assumptions; this remains subject to market, actuarial, and legislative changes.
- Key risks include competition and technology change; retaining clients and skilled employees; executing acquisitions and growing DWS and C&I; fixed-price contract profitability; COVID-19 and supply-chain or cost inflation effects; cybersecurity and IT disruption; international currency and regulatory exposure; access to financing and credit-rating changes; and significant underfunded pension obligations.
- Tax-asset realization is uncertain: the company maintained a $1.226 billion valuation allowance against deferred tax assets and noted that changes in future taxable-income expectations could materially affect the allowance. U.S. tax attributes are subject to Section 382 limitations.
- Brazilian operations had unreserved tax-related matters, including interest, estimated at up to approximately $75 million; management said it had established appropriate accruals based on available information. The company also disclosed ongoing ordinary-course litigation and stated that adverse outcomes could materially affect a particular period.
- Other notable items: three acquisitions were funded with cash on hand; the 2021 CompuGain purchase-price allocation was preliminary. The company paid no common-stock dividends and did not repurchase shares in 2021.
Most important facts for investors to verify
- Whether improved segment margins and operating cash generation persist without the unusually low 2021 pension contributions and despite currency effects.
- The extent and timing of future pension funding needs, the assumptions behind the stated U.S. contribution outlook, and the effect of pension settlements on reported earnings.
- Whether the $3.0 billion backlog converts as expected, including potential cancellations, and how backlog relates to the separately reported remaining performance obligations.
- Final CompuGain acquisition accounting, acquisition integration results, and returns on the three 2021 acquisitions.
- Liquidity accessible from overseas cash, ABL availability and covenants, and repayment or refinancing needs for the 2027 secured notes.
- Developments in deferred-tax-asset valuation allowances, Section 382 tax-attribute limits, Brazilian tax matters, and other litigation or contingencies.